Taking the first steps and getting started investing is the hardest thing to do. There’s fear. There’s the unknown. There’s the idea that millions of other people know more than you and you’ll get taken advantage of.
Approach investing for the first time the way you would approach learning to drive for the first time – focus on the basics and get those right. For investing, that means starting by setting a financial goal (i.e. what you want to buy, when you want to buy it, and how much it will cost). [Note that “investing” by itself is not a financial goal!]
Most people who participate in plans that offer a match will contribute up to the match (although according to 401k plan manager Financial Engines, 25% of plan participants miss out on their employer match). However, that’s probably not good enough. The estimated amount that a person needs to save for 30 years in order for the nest egg to cover half their expenses for a 30 year retirement, assuming that expenses keep pace with inflation and don’t increase over time, is 16.2%.
When you are just starting out, your first priority should be building up an emergency fund, and consider investing once that’s established. It’s important to form saving and investing habits by setting aside money on a regular basis. Your assets will build over time, and you’ll gain momentum and feel encouraged as you watch your balances grow. Before starting to invest, reflect on your objectives, timeline and risk tolerance.
Keep the following three D’s in mind when it comes to investing: Discipline, Diversification and Diligence. As studies have shown over the years, the huge gap between investment returns and investor returns is due to investor behavior, or the tendency of all investors, professional and beginner, to shoot themselves in the foot. Behavioral Finance has become a huge field for this very reason. Diversification is the only free lunch in investing, and thus is a must for all portfolios. Investing requires Diligence since we are talking about real money. Know what you own and why, and keep on top of how it is doing without driving yourself and engaging in unnecessary trading.
It is best for individuals to begin saving as soon as possible in the first job after graduating college. Many recent grads will make excuses to not save, or desire for spending money on entertainment and lifestyle as opposed to prioritizing the future. The first step in creating and executing a savings plan involves goals. After goals and earmarking how much you should save, the next important consideration is how you will invest your money. If you’re young and just starting out, be as aggressive as possible as hopefully you won’t touch the money until retirement.
The best investing advice for beginners from 13 experts on investing and financial planning share how new investors need to automate, save, and not worry.
— Read on thecollegeinvestor.com/16553/the-best-investing-advice-for-beginners/